Archive for the ‘Financial’ Category
Your personal income, expenditure spending budget, and individual savings tend to be the most significant determinants of your family’s long-term financial prosperity
This decline in the personal savings rate is ominous. On average as a nation, we are no longer personal savers. While many people continue to save, others are liquidating investment portfolio assets and/or incurring debt to maintain their consumption. This is not a recipe for long-term personal finance success.
A slightly negative national personal savings rate does not mean that the country overall is not saving. The personal savings rate does not include the aggregate positive net income of U.S. businesses. Nevertheless, only those who already possess equity securities and debt securities can benefit from the net income growth of private and public businesses. If the average net personal savings rate is negative, then on average, people have no excess current income to invest. Therefore, they cannot increase their ownership in business equity and debt. Some individuals continue to save and invest, while the average personal savings rate is near zero or negative. Therefore, others are doing the opposite and are divesting their personal assets.
Some commentators have attributed the decline in the personal savings rate to the “wealth effect.” The argument is that increasing asset values in the stock markets, in real estate, and for other personal assets make some people feel richer, and therefore they spend more. While the wealth effect may be a plausible explanation for some of the downward slide in the personal savings rate, this does not mean that this trend is wise or sustainable for the vast majority of Americans. Among those who possess at least some investment portfolio assets, the great majority have not amassed enough investment assets to meet their long-term financial planning needs.
For those without investment assets, the wealth effect explanation is meaningless. For many of them, the real explanation can be found in the erosion of real dollar wage rates combined with an inability or unwillingness to reduce expenditures. Controlling the growth of expenditures, when real wages are rising, is relatively easy to do, if a family commits to do so. In contrast, to cut back on customary consumption, when real wage rates fall and inflation rises simultaneously, is far more difficult to do.
The decline in the national personal savings rate is emblematic of major problems in personal financial planning. For many decades, the U.S. economy has been incredibly productive and generous. Nevertheless, can our economy sustain itself in the long-term on a zero or negative domestic personal savings rate? New investment capital for U.S. business expansion increasingly has been supplied from overseas and not domestically. High personal consumption and negative personal savings rates cannot be sustained in the end. If Americans cede asset ownership to more thrifty residents of other countries, any wealth effect will also be transferred overseas.
Something must change. While you personally cannot solve this national problem, if you have a personal savings problem, you can take immediate steps to address it. You can budget and plan to meet all expenses and debts across your lifecycle, and you can adjust your current financial behaviors and your current financial planning accordingly. You can consume and save across your lifecycle in a balanced and conservative manner. Because the future offers neither guarantees nor any predictability, you should further restrict your current expense consumption to build substantial investment portfolio assets that can provide asset buffers for times of future difficulty, to fund your retirement plan, and to provide for an estate, if desired. You cannot do this with a negative personal savings rate.
Tags: budget, expenditure, income, individual, personal, saving, spending
Financial Statement Analysis
All financial statements are essentially historically historical documents. They tell what has happened during a particular period of time. However most users of financial statements are concerned about what will happen in the future. Stockholders are concerned with future earnings and dividends. Creditors are concerned with the company’s future ability to repay its debts. Managers are concerned with the company’s ability to finance future expansion. Despite the fact that financial statements are historical documents, they can still provide valuable information bearing on all of these concerns.
Financial statement analysis involves careful selection of data from financial statements for the primary purpose of forecasting the financial health of the company. This is accomplished by examining trends in key financial data, comparing financial data across companies, and analyzing key financial ratios.
Managers are also widely concerned with the financial ratios. First the ratios provide indicators of how well the company and its business units are performing. Some of these ratios would ordinarily be used in a balanced scorecard approach. The specific ratios selected depend on the company’s strategy. For example a company that wants to emphasize responsiveness to customers may closely monitor the inventory turnover ratio. Since managers must report to shareholders and may wish to raise funds from external sources, managers must pay attention to the financial ratios used by external inventories to evaluate the company’s investment potential and creditworthiness.
Although financial statement analysis is a highly useful tool, it has two limitations. These two limitations involve the comparability of financial data between companies and the need to look beyond ratios. Comparison of one company with another can provide valuable clues about the financial health of an organization. Unfortunately, differences in accounting methods between companies sometime makes it difficult to compare the companies’ financial data. For example if one company values its inventories by the LIFO method and another firm by average cost method, then direct comparisons of financial data such as inventory valuations are and cost of goods sold between the two firms may be misleading. Some times enough data are presented in foot notes to the financial statements to restate data to a comparable basis. Otherwise, the analyst should keep in mind the lack of comparability of the data before drawing any definite conclusion. Nevertheless, even with this limitation in mind, comparisons of key ratios with other companies and with industry averages often suggest avenues for further investigation.
An inexperienced analyst may assume that ratios are sufficient in themselves as a basis for judgment about the future. Nothing could be further from the truth. Conclusions based on ratio analysis must be regarded as tentative. Ratios should not be viewed as an end, but rather they should be viewed as a starting point, as indicators of what to pursue in greater depth. They raise may questions, but they rarely answer any question by themselves. In addition to ratios, other sources of data should be analyzed in order to make judgments about the future of an organization. They analyst should look, for example, at industry trends, technological changes, changes in consumer tastes, changes in broad economic factors, and changes within the firm itself. A recent change in a key management position, for example, might provide a basis for optimism about the future, even though the past performance of the firm may have been mediocre.
Few figures appearing on financial statements have much significance standing by themselves. It is the relationship of one figure to another and the amount and direction of change over time that are important in financial statement analysis. How does the analyst key in on significant relationship? How does the analyst dig out the important trends and changes in a company? Three analytical techniques are widely used; dollar and percentage changes on statements, common-size statements, and financial ratios formulas.
Tags: Business Units, Financial Statements, Stockholders
Financial Freedom
If anyone lacks wisdom, let him ask of God who gives liberally with no reproach. You are right, you have heard every sermon on financial freedom but your situation has not changed, it looks like it your situation even got worse. Do not give up, there is practical teaching that actually fill in the blanks that is left out in sermon. Wisdom and knowledge will be the stability of our times, wait do not give up until you find the truth which will change your life forever.
Most Christians are desperately broke and in some kind of financial trouble. Why? We serve of God who is able to supply our needs according to his riches in glory and it is his will that we prosper and be in good health even if our soul prospers. So we know that it is God’s will for us to live in abundance but why is that his will is not our reality? You have heard about having faith, trust God and God will supply and this is true but that alone is not what will put food on your table. The first step is having faith and renewing your mind about God’s will for you to prosper, but it does not stop there. Having faith does not mean that you will receive miracle checks in the mail or people will automatically give unto you pressed down and shaken together and running over. I wish it was that simple but the truth is, it is not. There are principles, there are legalities and there is what we need to do and what God will do.
Wisdom is the principle thing. Ask God to give you wisdom, wisdom for your job, ideas about your new business, wisdom to make good decisions, remember, God tells us to remember that he is the one who gives us power to create wealth. Wealth creation is God’s business so why try to run it without consulting him. King Solomon asked God for wisdom and as we all know he was the richest man that ever lived. We need God’s wisdom to create our business plan, wisdom to decide when to go into partnership, wisdom to decide when to buy or sell, wisdom to decide whether to work for someone or start your own business, wisdom for our daily walk with God. God gives us wisdom liberally without reproach so do not go another day not knowing what to do because God is able and willing to give us wisdom pertaining to anything we want to do.
It is time to stop praying for money and start praying for wisdom. You are not alone, a lot of people have been in the same situation until they had a revelation and walked through practical steps to achieving financial freedom. It is not too late, it is only late when you give up. It was never God’s will to live in financial bondage so why should that be your reality. May you discover the truth that will propel you into abundance and prosperity.
Join me and let us walk through this practical steps to achieving financial freedom on my blog, share your insights and also have the chance to learn from people with real life testimonies. Your life will take a different direction, a u-turn to the financial freedom street where there is no speed limit.